Hundreds of Calgary business owners including Darren Hamelin rallied outside city hall on Monday June 10, 2019, to protest huge hikes in business taxes.
Gavin Young / Postmedia
If anything good comes out of Calgary’s tax fiasco and small business revolt this week, it should be an appreciation for the fragility of Alberta’s cities.Small business owners were staring down bankruptcy, reporting tax increases of 60 per cent and higher when they were asked to shoulder the deepening impact of a hollowing out of the downtown office sector.Calgary’s council saw it coming, then dithered. Unwilling to ask homeowners to step up any further, council stepped away from even temporary solutions. Finally hundreds of business owners rallied outside city hall Monday. Council voted to rapidly slash the budget and lay off staff.Edmonton can swagger and boast, pretending it dodged this bullet through good financial management. But that’s not the whole story. Edmonton faces similar risks. It has the same tax structure, and its businesses are likely starting to feel the same pain, albeit at a lower level.Let me walk through how this happened.In Alberta, provincial law requires every city to balance its budget. So both Calgary and Edmonton start by figuring out how much money they believe they need. That sets the size of the pie.Then each city divides the pie roughly in two — half to come from a large group of homeowners and landlords, half from the smaller group of business owners. Each group divides the half-pie amongst themselves, paying according to how much a property is worth relative to the rest of the group.This is why the tanking downtown office sector hit small business elsewhere so hard. Calgary’s office vacancy rate is still around 27 per cent. Unable to collect normal rent, the sector lost $14 billion in value. Office tower landlords went from paying 32 per cent of the non-residential half of the pie in 2015, to just 19 per cent this year. Any business not seeing the value of their property plummet automatically got billed to cover those who were.The provincial education tax follows those same trends and makes the problem worse.For two years, Calgary’s city council tried to plug the hole with temporary measures, hoping the economy would rebound.They implemented a five per cent cap on increases for individual business. But that only deferred the increase for one year and the effect compounded. It’s the compounding effect that really hurts. Under the tax deferral program, a business facing a 10 per cent increase for each of two years would still pay an 18 per cent increase in the second year under the cap.That gives a hint of the desperation that hit this spring, year three. Council mailed out tax notices without any cap — business revolted.
Hundreds of Calgary business owners rallied outside city hall on Monday, June 10, 2019, to protest huge hikes in business taxes.
Gavin Young /
Here in Edmonton, the downtown office sector has never been as large. It was 16 per cent of the non-residential tax base in 2019, and was protected by the large government sector during the downturn.Vacancy rates peaked at about 18 per cent, even as three new office towers came online in the Ice District. Since then, the tech sector has taken more space, and at least two buildings are being converted for hotel or residential use. Vacancy is now at 13 per cent.This spring, Edmonton had four towers downtown with more than 100,000 square feet of vacant space, according to market assessments by Avison Young. That will increase tax bills for other business properties when they are marked down as chronically vacant. But the scale of the issue is nothing like Calgary faces.That’s not to say there aren’t problems. Prosperity Edmonton, the business group lobbying against more tax increases, say they’ve been facing a similar increase in tax as businesses in Calgary, just over a longer period of time.Warehouse owners, in particular, have been reporting tax increases beyond what council expected, said Mayor Don Iveson in an interview Tuesday. Other businesses report wild swings, a 20 per cent drop one year and a 30 per cent spike the next.He asked administration to report back this fall with a multi-year analysis to start a debate by council. Past council decisions to put major bills, such as neighbourhood renewal, on the general tax levy may have been unfair to business, he said. “It’s time for us to look some of that in the face.”Cities are in a tight place. They’ve only got grants and property taxes to pay the bills, and past councils built residential neighbourhoods with densities too low to pay for ongoing maintenance. Today’s council can either let those streets decay or raise taxes to rebuild them, charging that to homeowners or businesses.But it must also get focused. The Calgary fiasco proves this house of cards can fall fast. In Edmonton, council is trying to find a new way to budget and hone in on priorities, promising this next 10-year plan will be more focused.Not everyone on council seems to get it, and in the meantime there’s so much inertia promoting the status quo. Business owners have a right to be email@example.com/estolteRelated